Five Music Tech Investment Areas You Need to Know (Guest Column)

Corey Donovan
Brian Penick

Here are several key indicators as to why music tech is a high growth area worth exploring.

The recorded music business is once again healthy, charting positive year-over-year growth, up 9.7% 2017-2018, and leading to the development of innovative new technology companies. Some of the biggest, Spotify and Tencent, have been driving that success and turned it into billion-dollar initial public offerings in recent years. According to a recent report by Goldman Sachs, the music industry -- which was gasping for breath 15 years ago -- is on track to reach $131 billion in the next decade. 

This has created exciting new investment opportunities in the music tech space. Here are several key indicators as to why music tech is a high growth area worth exploring.

Disrupting The Creative Process

Artificial intelligence is about to turn everything on its head. Our media consumption rate (8+ hours/day) is exceeding our ability to create content using traditional methods. Imagine, without any prior training, creating a song via AI software with a single click. Now imagine leveraging that song to create a worldwide audience or, even better, a YouTube star pushing that song out to their already-established following. AI can also help fuel hyper-personalized content: Whether you want to adjust a song’s beats per minute to match your heart rate during a workout, change the listening environment to your preference or create remixes of songs for companies to license directly from you, the creative process itself -- not just the business that surrounds it -- is now ripe for disruption.

Metadata & Blockchain

Metadata is a modern tool the music industry uses to identify song ownership and track what music is played so that the creators are paid. But evidence has shown that information has been mishandled. A 2016 study conducted by my former music recognition company, Soundstr, surveyed almost 3,000 songs in 12 businesses over 2 weeks and found that more than 80% of the music played in public establishments such as bars, night clubs and coffee shops was not properly accounted for. On a national scale, this leaves hundreds of millions of dollars or more on the table for songwriters and publishers, all because of a lack of metadata and tracking methods.

One promising solution is blockchain technology, which is a public ledger of data to track every stream, download and performance. The implementation of blockchain and tracking standards to enforce around music usage will leverage the metadata to ensure rights holders will be fairly compensated. This wealth of data transparency will help labels, publishers and rights organizations with royalty distributions and more, and some argue it will increase the value of the music industry beyond the Goldman Sachs report’s valuation.

Direct to Consumer

Practically every musician uses social media to engage with fans. These third-party platforms, such as Facebook, Instagram, and TikTok, monetize the musician-to-fan relationship through advertising and procuring data, but that revenue is not shared with the people of influence or their fans. This missed revenue is a continued frustration for creators. 

New music and entertainment tech offer celebrities direct-to-consumer platforms to bypass traditional social media. These “owned” content channels will offer exclusive music, backstage videos and personalized fan engagements, which will come at a price for fans but will generate revenue for creators. 

Beyond fan revenue, direct-to-consumer platforms offer valuable insights to celebrities. This data can offer artists the ability to identify which venue in a city to book tours, better highlight which products and services their fans consume for sponsorships (or investing) and more information that’s not always accessible with traditional social media platforms based on their fans’ historical preference.

Brand Empowerment

A creator’s most valuable asset is their brand. Their talent is a mere component of the brand. Thus, creatives need to protect their brand and everything it reaches, including the audience, data, content and more. With music tech making the music production process more accessible, even more creators will be generating content, establishing their brands and leveraging their audiences for revenue.

Consider the celebrity influencer marketing space: Companies see an average of $7.65 earned media value for every $1 spent on influencer marketing. Despite more than half of the top 20 Instagram accounts being musicians, influencer marketing has remained largely untapped in the music sector. This is especially important to consider with micro-influencer social accounts with anywhere from 1,000 to 250,000 followers. One study found micro-influencers engage with consumers 22% more every week, leading to 82% of consumers being “highly likely” to act on their recommendations versus 73% from average users. More music creators entering the market and higher engagement/conversion rates from micro-influencers suggests more emphasis will be placed on music influencers and the technology needed to identify them before too long. 

Music data aggregation has been a hot acquisition space for music tech, with more than $100 million collectively coming from Spotify with The Echo Nest, Pandora with Next Big Sound and Apple with Asaii in recent years. These music data platforms will continue to be targets for advertisers in finding music influencers beyond their traditional use of talent discovery for record labels.

Celebrity Investment

Successful creators and influencers who reach "celebrity" status will have a major impact on music and entertainment tech through investing.

While celebrities have been investing for years, we are beginning to see a push towards personalized celebrity investment vehicles. Ashton Kutcher, Snoop Dogg, Nas, Will Smith, Steph Curry, Jay-Z, Serena Williams, Aaron Rogers and Derrick Morgan are just a few big names who have launched their own investment funds. The evolution of this model will be to not only leverage a celebrity’s name but also their influence.

In order to incorporate an investment into their marketing, a celebrity must first determine what positions align with their brand -- and most importantly, their audience. Beyonce’s vegan-focused brand would not resonate well with fans if she promoted a fast-food chain. Replace fast food with her vegan meal delivery service 22 Days Nutrition and now you have an organic alignment between celebrity brand, product and audience. Taking this one step further, why wouldn’t Beyonce grow her brand to incorporate health and wellness? Can you imagine starting your day with a Beyoncersize workout video while wearing Ivy Park workout clothes and your BeySlay fitness tracker, then enjoying a 22 Days Nutrition vegan protein meal and counting the calories on the Beehave nutrition app? All puns aside, that’s five daily touchpoints to keep Beyonce connected with fans, all with alternative revenue streams outside of her music.

The real opportunity comes when celebrities realize that, while single or minimal recurring payouts from sponsorships, endorsements or licensing deals are good in some scenarios, the bigger returns come from investing. What better to invest in than products and services you associate and market with your brand? 

Earning compensation when your fans stream your music or video content on a platform is one thing, but the ability to earn when any fan streams any content from any celebrity on a platform is an entirely different scenario. Jay-Z acquiring Tidal for $56 million raised questions back in 2015, but Sprint’s 2017 purchase of 33% of the stock for a rumored $200 million showed it was the right move for the now-billionaire. Celebrities associating their brands alongside their investments will continue to be an upward trend. Music and entertainment tech -- the products and services celebrities already utilize regularly -- are obvious targets.

Brian Penick is the Managing Partner of Legacy Entertainment Ventures, a service suite for celebrity musicians, eSports athletes and influencers, which focuses on high growth areas such as music and entertainment tech. Penick previously launched music tech startups Soundstr and Musicians Desk Reference, both of which were acquired. He was also a professional musician for more than a decade.


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